Key Takeaways
- • Blue Owl is considering reviving its abandoned merger of Blue Owl Capital Corporation II (OBDC II) into publicly traded OBDC, contingent on OBDC's share price improving, according to two people familiar with the matter.
- • Blue Owl abandoned the merger on Nov. 19 after investor backlash over a plan that froze withdrawals from the smaller fund and offered its holders the price of the larger fund.
- • Blue Owl co-president Craig Packer told Reuters the firm is not actively considering reviving the merger, calling the move "a cancellation not a postponement."
- • An independent IPO of OBDC II is unlikely to be pursued, and any merger would likely precede OBDC II's liquidity event, expected by April 2026 or April 2027.
- • OBDC II holds 190 companies worth $1.7 billion, while OBDC holds 238 companies worth $17.1 billion, as of Sept. 30.
Summary
Blue Owl Capital is weighing a revival of its plan to merge two private credit funds, provided the share price of the larger publicly traded fund, Blue Owl Capital Corporation (OBDC), improves, according to two people familiar with the matter cited by Reuters. The discussions are confidential, and the sources cautioned that nothing has been finalized and did not specify timing. The sources did not state a specific share price target, but said the OBDC fund preferably should not trade at a discount to its net asset value.
The firm was forced to abandon the combination of OBDC and Blue Owl Capital Corporation II on Nov. 19 after the plan, which would have frozen withdrawals from the smaller fund and offered its holders the price of the larger fund, rattled investors. When the merger was announced, OBDC traded at a discount to the net asset value of its holdings, meaning OBDC II investors faced potential losses of about 20% in the value of their holdings, according to an investor presentation from Blue Owl and Reuters calculations. OBDC reported a third-quarter NAV per share of $14.89, and its shares have traded between $11.65 and $15.73 this year.
In a statement to Reuters, Blue Owl co-president Craig Packer denied that the firm is actively considering reviving the merger at this time. Blue Owl said on Wednesday it continues to believe in the merits of combining the funds but is "no longer pursuing the merger at this point given current market conditions." The firm had said it would reevaluate alternatives, and the sources said an independent IPO of OBDC II is unlikely, with a merger viewed as the most desired outcome given the considerable overlap in the funds' portfolios. Packer told Bloomberg TV that "there may be other options that we may come up with in the next few months." Blue Owl also said it would allow investors to withdraw their money starting in the first quarter of 2026.
The episode comes amid investor anxiety over credit quality following several high-profile bankruptcies, with private credit under particular scrutiny. Mitchel Penn, a senior analyst at Oppenheimer & Co, said a merger would be the most accretive option for shareholders, adding that if OBDC trades close to book value, "there's a real possibility that they'll revisit it." Precedents include Carlyle's 2024 merger of its public Secured Lending fund with its private Secured Lending III fund and Goldman Sachs' 2019 merger of its public BDC with Middle Market Lending Corp.
The firm was forced to abandon the combination of OBDC and Blue Owl Capital Corporation II on Nov. 19 after the plan, which would have frozen withdrawals from the smaller fund and offered its holders the price of the larger fund, rattled investors. When the merger was announced, OBDC traded at a discount to the net asset value of its holdings, meaning OBDC II investors faced potential losses of about 20% in the value of their holdings, according to an investor presentation from Blue Owl and Reuters calculations. OBDC reported a third-quarter NAV per share of $14.89, and its shares have traded between $11.65 and $15.73 this year.
In a statement to Reuters, Blue Owl co-president Craig Packer denied that the firm is actively considering reviving the merger at this time. Blue Owl said on Wednesday it continues to believe in the merits of combining the funds but is "no longer pursuing the merger at this point given current market conditions." The firm had said it would reevaluate alternatives, and the sources said an independent IPO of OBDC II is unlikely, with a merger viewed as the most desired outcome given the considerable overlap in the funds' portfolios. Packer told Bloomberg TV that "there may be other options that we may come up with in the next few months." Blue Owl also said it would allow investors to withdraw their money starting in the first quarter of 2026.
The episode comes amid investor anxiety over credit quality following several high-profile bankruptcies, with private credit under particular scrutiny. Mitchel Penn, a senior analyst at Oppenheimer & Co, said a merger would be the most accretive option for shareholders, adding that if OBDC trades close to book value, "there's a real possibility that they'll revisit it." Precedents include Carlyle's 2024 merger of its public Secured Lending fund with its private Secured Lending III fund and Goldman Sachs' 2019 merger of its public BDC with Middle Market Lending Corp.
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